Go Away, Economists; Take Your Nobel With You

The latest ersatz Nobel prize went to a couple of guys who theorize a lot about contracts. This is the kind of work that now dominates much of economics. Tinkering with mathematics, incentives, and other aspects of minutiae whilst steadfastly turning away from the rapidly approaching storms that threaten the lives of real people outside the tenured redoubts professors hide within.
— Peter Radford, “The Market and Nobels.” Real-World Economics Review Blog, 12 OCT 2016.

I don’t know how many times I’ve written here that economists shouldn’t be listened to and certainly shouldn’t be trusted. Their “forecasts” and “predictions” and even after-the-fact “explanations” are — far more often than not — complete bullshit.

I once said this on Facebook and someone got angry because they have a friend who’s an economist. He commented and said something about having done it for twenty years or some such . . . blah, blah, blah. Just because you do something for twenty years doesn’t make it legitimate.

When I checked out his blog, I noticed that he pointedly doesn’t write about economics. He’s written about education, however.[1] That’s also a rather political subject, as are the others he discusses. Once again, ideology triumphs.

What I’d planned to write about yesterday (but didn’t) is the economic sciences Nobel awarded earlier in the week. It’s important to know this isn’t a real Nobel. Nor is economics a science.

As Avner Offer and Gabriel Soderberg write in their new book, The Nobel Factor: The Prize in Economics, Social Democracy and the Market Turn:

The Nobel prize came out of a longstanding social conflict. On one side, central banks and the better-off striving to keep property intact and prices stable; on the other, everyone else’s quest for economic security. The Swedish social democratic government clipped the wings of the central bank – Sveriges Riksbank – in pursuit of more housing and jobs. In compensation, the government allowed the central bank to keep some funds, which the bank used in 1968 to endow the Nobel prize in economics as a vanity project to mark its tercentenary.

In The Guardian:

Would it not be extremely useful to take economics down one peg by overhauling the prize to include all social sciences? The Nobel prize for economics is not even a “real” Nobel prize anyway, having only been set up by the Swedish central bank in 1969. In recent years, it may have been awarded to more non-conventional practitioners such as the psychologist Daniel Kahneman. However, Kahneman was still rewarded for his contribution to the science of economics, still putting that field centre stage.

Think of how frequently the Nobel prize for literature elevates little-known writers or poets to the global stage, or how the peace prize stirs up a vital global conversation: Naguib Mahfouz’s Nobel introduced Arab literature to a mass audience, while last year’s prize for Kailash Satyarthi and Malala Yousafzai put the right of all children to an education on the agenda. Nobel prizes in economics, meanwhile, go to “contributions to methods of analysing economic time series with time-varying volatility” (2003) or the “analysis of trade patterns and location of economic activity” (2008).

But the writer goes on:

A Nobel prize in economics implies that the human world operates much like the physical world: that it can be described and understood in neutral terms, and that it lends itself to modelling, like chemical reactions or the movement of the stars. It creates the impression that economists are not in the business of constructing inherently imperfect theories, but of discovering timeless truths.

To illustrate just how dangerous that kind of belief can be, one only need to consider the fate of Long-Term Capital Management, a hedge fund set up by, among others, the economists Myron Scholes and Robert Merton in 1994. With their work on derivatives, Scholes and Merton seemed to have hit on a formula that yielded a safe but lucrative trading strategy. In 1997 they were awarded the Nobel prize. A year later, Long-Term Capital Management lost $4.6bn (£3bn)in less than four months; a bailout was required to avert the threat to the global financial system. Markets, it seemed, didn’t always behave like scientific models.

Criticism of the Nobel — and, more important, economics as a profession — continues. You can likely see the dissatisfaction with the status quo among some economists roiling beneath the surface of the economics field just by what’s written been about the Nobel. There’s plenty more criticism of economists and the field of study (work?) out there. I’m not alone.

[1] I should note that college professors who write about Pre-K-12 education often place themselves in dangerous rhetorical waters because they assume teaching is teaching (or some similar concept). They think, “Well, I could do that. It’s simple. Just . . .” But applying tertiary education methods to elementary and secondary education settings haven’t exactly worked. Also highly dissimilar: the teaching experiences at various levels. College students may be assholes but they rarely shit their pants.

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